Transcript Commercial Law Consideration

What is consideration?
It distinguishes a CONTRACT from GIFT.
Usually it is the main reason for the promise.
Section 2(d) CA defines consideration as ‘when, at the desire
of the promisor, the promisee or any other person has done
or abstained from doing, or does or abstains from doing, or
promises to do or to abstain from doing, something, such act
or abstinence or promise is called a consideration for the
promise’
Why consideration important?
Without it, agreement is void.
Section 26 CA – ‘An agreement made without
consideration is void’
How to make sure that
‘consideration’ exist?
Look whether the elements of consideration are
fulfilled.
Elements:
1. Consideration need not be adequate
2. Consideration may move from the promisee or any
other person
3. Past consideration is a good consideration
4. Part payment may discharge an obligation
1. Consideration need not be
adequate
Section 26 explanation
2 – ‘An agreement to which
the
consent of the promisor is freely given is not void merely
because the consideration is inadequate; but the inadequacy
of the consideration may be taken into account by the court in
determining the question whether the consent of the
promisor was freely given’
Case: Bolten v Madden (1873) LR 9 QB 55 – the court stated
that the adequacy of the consideration is for the parties to
consider at the time of making the arrangement and not for
the court to decide.
1. Consideration need not be
adequate
General Rule: Consideration must be sufficient
Effect: The law is not concern with the fairness of the bargain
UNLESS it can be proven that the contract was entered
without the free consent of the parties.
Case: Phang Swee Kim v Beh I Hock (1964) MLJ 383 – the
court held that a transfer of land for RM500 is valid as there
was no evidence of fraud or duress.
1. Consideration need not be
adequate
Can a person buy a house for RM1?
YES – if it is agreed between the parties with free
consent.
What is ‘free consent’?
The answer is in Section 14 CA.
2. Consideration may move from
the promisee or any other person
Section 2(d) CA defines consideration as ‘when, at the
desire of the promisor, the promisee or any other
person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain
from doing, something, such act or abstinence or
promise is called a consideration for the promise’
3. Past consideration is good
consideration
What is past consideration?
It consist of consideration wholly performed before the
promise was made (before conclusion of offer and
acceptance)
It was made not in response to a promise.
The promise is after the act of consideration and
independent of it.
Example:
Abu is drowning. Ali who was passing by heard Abu’s cries for
help. Ali dived into the river and saved Abu from drowning.
Abu promised to give RM1000 to Ali.
The act of saving Abu was performed wholly before the
promise was made. The promise is done after the act.
Authority: Section 2(d)
Case: Kepong Prospecting Ltd v Schmidt [1968] 1 MLJ 170
4. Part payment may discharge
and obligation
General Rule: Payment of a smaller sum is a satisfaction
of an obligation to pay a larger sum.
Authority: Section 64 CA and illustration (b) of section
64 CA
Case: Kerpa Singh v Bariam Singh [1966] 1 MLJ 38
In this case the debtor’s son offered to give a cheque of
RM4000 as payment in full in order to discharge his father
from a debt of RM8650. It was held that the creditor had
accepted the tender by cashing the cheque and retaining the
money, he must be taken to have agreed to discharge the
debtor from any further liability.
General Rule Revisit:
An agreement made without consideration is void,
unless—
1. it is in writing and registered
2. or is a promise to compensate for something done
3. or is a promise to pay a debt barred by limitation
law